To prepare the ground for saving for retirement, you should re-examine your spending habits to find ways to cut back.

Many people would like to retire early, but few take the steps necessary to make this possible. Some actually have trouble retiring in their 60s, and must continue to work for several more years just to pay expenses. Surveys show that nearly half of American workers have less than $10,000 saved for retirement.

If you want to retire, say in your 50s, you should be planning and taking action in your 30s. If you've already missed that retirement-planning boat, don't worry: Another vessel leaves every day. You can't do anything about yesterday but you can do a lot about tomorrow.

The key to saving is having something to save. That means not spending every dime you make. So, to prepare the ground for saving for retirement, you should re-examine your spending habits to find ways to cut back. Most consumer spending is on items that depreciate rapidly, including cars, electronic appliances, clothes. These are the opposite of investments because they lose value rather than growing in value.

An increasing area of spending for many people is payments on recurring monthly charges for cell phones, smart phones, internet access, cable/satellite television service, home monitoring systems, and on and on. You should ask yourself: Do you really need umpteen gigabytes of data usage every month? Are there wiser things you could and should be doing with your money instead of sending hundreds of texts every day. Do you need to be wirelessly in touch 24/7?

With your spending under control, you'll be able to put aside more money for retirement. If you wait too long to do this, time is your enemy. If you start early, time is your ally. Over decades, compound interest is a boon. If you invested $5,000 per year from age 25 to 35 and then stopped, you'd have more than $600,000 by age 65, assuming 7 percent annual gains. Just imagine how much more you would have if you continued to invest after 35, thus potentially being rewarded with early retirement.

Regardless of your income and savings strategy, you must ensure that you save enough. How much is enough? Many have traditionally recommended savings of at least 10 to 12 percent of your salary. But that's not enough for early retirement, especially now that people are living much longer.

One way to determine how big a retirement nest egg you'll need is to think about the retirement lifestyle you desire and put together a realistic retirement budget: how much you'll need for non-discretionary monthly expenses, and how much you want for discretionary expenses such as vacations and travel. This will give you a floor for planning and may alert you to the need to cut back on spending now. This way, you may be able to retire as you'd planned. Or, this exercise may prompt you to tone down retirement goals and make them more modest.

Saving is only half the battle toward assuring your nest egg. The other half is investing. The thing to remember about the markets is that you must be in it to win it. The stock market throws off great returns randomly on few days, and if you're not invested on those days, you miss out. Also, remember that those days make up for the temporary declines, so the key is to benefit from market averages over time. A good way to do this is to use a low-cost, passively managed index funds, whose performance is linked to different market indexes, such as the Russell 3000. In contrast, the best way to have the market whittle away at your nest egg is paying dearly for investment managers who speculate by buying and selling stocks.

By controlling spending, increasing savings, and investing consistently and wisely, you'll be able to retire sooner than you otherwise would. And in the meantime, you get a beautiful thing: peace of mind.

Tim Decker is the president of ISI Financial Group (www.isifinancialgroup.com), a wealth management firm in Lancaster, and a fee-only financial planner (he sells no products). His weekly call-in radio show, Financial Freedom, airs Saturdays at noon on WHP580 AM. Decker answers questions from readers in the Patriot-News the third Sunday of every month. Readers may submit questions at Tim-wisemoney@isifinancialgroup.com.

The opinions expressed in this column are solely the writer's and do not reflect the opinions of PennLive.com or The Patriot-News.

Before acting on any financial advice, readers should consider whether it is suitable for their circumstance and consider seeking advice from a financial or investment adviser.

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